Who is Keeping Score?

  • Shutdown bomb
  • Jumping in
  • Don’t worry…be happy

Hampton Creek Inc. has escaped controversy unscathed…again.

The little start-up has caused a bit of a ruckus. Some might say all out of proportion to its size or significance. It all began when it first launched its eggless mayonnaise, ‘Just Mayo’. The product started an unexpected mayonnaise war.

First, it was Unilever. Unilever sued them for misbranding after Just Mayo took some of its market share. The Hellmann’s giant argued they could not use the name ‘mayo’ since the product did not contain any eggs.

After getting bad press, Unilever dropped the claim.

Hellmann’s settled for adding the word ‘Real’ before mayonnaise on their label. And they ended up launching a new eggless product: ‘Hellmann’s Carefully Crafted Dressing & Sandwich Spread.’ A mouthful, if you ask me.

Hampton Creek 1 — Egg Mayo 0

Then came the US Food and Drug Administration (FDA). The FDA argued Hampton Creek could not brand their product mayo as it contained ingredients not usually found in mayonnaise, like food starch and pea protein.

The FDA backed down on one condition: Make the ‘egg-free’ claim bigger. If you ask me, they got off lightly.

Hampton Creek 2 — Egg Mayo 0

And then along came the egg industry.

Hampton Creek’s CEO complained that the American Egg Board had been sending him threatening emails and had tried to sabotage ‘Just Mayo’ from selling in the supermarket health chain Whole Foods. It seems like ‘big eggs’ had launched an all-out war against Hampton Creek, as it saw the company as a threat to the egg industry.  

How did it end? The American Egg Board president retired two months early.

Hampton Creek 3 — Egg Mayo 0.

And now there’s the latest scandal — but who is keeping count anymore?

As reported by Bloomberg,

Investors weren’t aware of these tactics, but the company assures buybacks were a small amount of the total sales.

After the SEC and the Justice Department launched an investigation to see if the company had been misleading investors on sales figures, they have found no wrongdoing.

And really, why should there be any wrongdoing?

After all, it’s really no different to companies in the stock exchange buying their own shares back to make their business look more valuable.

But more on this after a look at the markets.

Markets

Overnight, the Dow Jones Industrial Average fell 45.74 points, or 0.22%.

The S&P 500 fell 2.39 points, for a 0.10% drop.

In Europe, the Euro Stoxx 50 fell 7.01 points, or 0.20%. Meanwhile, the FTSE 100 fell 0.59%, and Germany’s DAX index lost 0.57%.

In Asian markets, Japan’s Nikkei 225 is up 184.86 points, or 0.97%. China’s CSI 300 is down 0.19%.

In Australia, the S&P/ASX 200 is up 69.60 points, or 1.20%.

On the commodities markets, West Texas Intermediate crude oil is US$47.99 per barrel. Brent crude is US$50.97 per barrel.

Gold is trading for US$1,254.40 (AU$1,646.88) per troy ounce. Silver is US$18.05 (AU$23.66) per troy ounce.

The Aussie dollar is worth 76.17 US cents.

Shutdown bomb

Meanwhile, the US dollar is down to its lowest value since November. Gold is up.

The Dow Jones is on an eight day slide — its longest losing streak since August 2011. The historical 109 day streak without a 1% decline in the market is effectively over.

Investors are starting to realise Trump is not the superhero they thought he was; and that markets move in both directions, not just up.

The days of markets reaching new highs may be coming to an end, and our old friend volatility is showing its ugly head. The volatility index peaked at 15.06 yesterday — for the first time this year —and closed at 12.96. Though it is still well below its historical average of 19.64.

Remember volatility? It was all the rage before Donald Trump got elected last November.

Volatility is on a comeback as Trump failed to rally his own party to repeal Obamacare, raising doubts that he can get anything else done.

He is promising bigger and better tax cuts, deregulation and infrastructure spending. But if he can’t get healthcare done, one of his key promises, what are the chances he can make the rest happen?

After all, he will still have to face the same rebel group that blocked Obamacare to accomplish anything else.

As The Australian Financial Review  reports:

Top political commentator Mike Allen of Axios reported that the White House and Republicans were “scrambling” to defuse the “shutdown bomb”.

“A top Republican with close ties to the White House tells me that after the GOP failure on healthcare, a government shutdown — looming when a continuing resolution runs out April 28 — is ‘more likely than not… Wall Street is not expecting a shutdown and the markets are unprepared.‘’

That’s right, markets are unprepared for a shutdown after the massive rally they have had.

But shouldn’t a correction be expected? After all, we have had a market crash every 10 years on average, as you can see in the chart below. Each crash has progressively gotten worse. So considering the market’s current nosebleed heights, the next one could be spectacular.



chart image

Source: Macrotrends.net
Click to enlarge


As our wealth preservation expert Vern Gowdie says, the higher we climb, the harder we fall.

Jumping in

Westpac has joined NAB and Commonwealth Bank in increasing mortgage rates. Westpac is set to announce an increase of up to 32 basis points. AMP is also announcing its second mortgage rate increase in two months.

Meanwhile, as banks are raising interest rates, citing rising costs and regulatory responsibilities, the RBA is keeping them on hold at historic lows.

And low interest rates are still pushing property prices up. According to the Sydney Morning Herald, house prices have jumped 3.7% since the beginning of the year.

But none of this is new.

The RBA is keeping rates at historic lows, and it looks like its counting on the Australian Prudential Regulation Authority (APRA) to tighten credit and regulate lending to put a stop on the property bubble.

The thing is that as APRA tightens credit, non-bank lenders are jumping in to fill the void, moving lending into a less regulated space.

As reported by the Australian:

According to brokerage Citigroup, APRA’s investor lending limit appears not to apply to a number of “micro-banks” that sit outside the four major banks and the second-tier regional lenders, such as Beyond Bank and Auswide bank, which are experiencing growth in lending at rates close to 20 per cent. Sydney-based Teachers Credit Union last year froze lending after experiencing investor lending growth at a rate of more than 16 per cent.

‘At the same time, more investor loans are being written by country’s network of mortgage brokers, with more than 50 per cent of the home lending market.

Non-bank lenders are not regulated by APRA as they are not Authorised Deposit-taking Institutions (ADIs). That is, they do not hold deposits.

APRA has already sent a warning to national lenders regarding the poor standards over their commercial and apartment mortgages. Yet as more national lenders limit credit and more construction companies are unable to get financing, they are moving into the non-bank lender space for funding.

Don’t worry…be happy

The late Jamaican singer Bob Marley had been promoting the global legalisation of marijuana since the 1970s. It looks like countries — and the markets —are finally starting to listen.

The marijuana market is expected to explode after California legalised pot for recreational use. This US state — and 27 others — legalised pot for medical use much earlier. Now Canberra is looking at doing something similar.  

Yet it is not just Port Phillip Publishing that is getting in on the pot mania frenzy, by recommending stocks that are doubling and tripling in price in a matter of days. Celebs are also jumping in.

Bob Marley’s oldest daughter launched the brand Marley Natural in 2014. Several of Marley’s other children have followed suit. After all, they already have the rights to the ‘unofficial’ anthem.

Calvin Broadus, popularly known as Snoop Dogg, has also branded his own line, called Leafs by Snoop. He has set up a US$25 million venture capital investment fund to invest in pot, aptly named ‘Casa Verde’ (green house in Spanish). The fund has already invested in a pot delivery service.

The thing is, even though marijuana is legal for recreational use, there is nowhere to buy it in California. It takes time to set up a supply chain. Growers and brands who are already established and allowed to sell medical marijuana could be the first to profit from the legalisation of recreation marijuana.

And there is a race to be one of the first licensees to profit from this. Other celebs investing in pot include Woody Harrelson, Whoopi Goldberg and Willy Nelson.

Our small-cap editor Sam Volkering has been all over this sector. He’s calling it the ‘Marijuana Mania’. It is a mania, and the mania fever in some of the best ‘pot stocks’ looks to be just starting. Details here.

Regards,

Selva